Financial systems provide important contributions in today's society by allowing entities (e.g., companies, organizations, individuals) to invest, obtain capital, offset risk (or take on new risk), etc. One example of how financial systems are important in today's society is an electronic exchange platform (e.g., the NASDAQ® Stock Exchange) that is used to buy and sell stock—e.g., buy 100 shares of company A. The high level concept of simply purchasing 100 shares is understandable. However, the execution of such a process through an electronic exchange platform is a more technical process.
Electronic exchange platforms operate on data messages (e.g., an order, quote, etc) received from an external source (e.g., a client computer system). An order, which is included in a data message, may relate to buying or selling any type of financial instrument. Exchange platforms and systems associated with exchange platforms provide processes that can route incoming data messages (e.g., a request to buy/sell a given financial instrument) to one or more trading destinations.
One type of trading destination is a primary listing market for an electronic exchange platform that maintains an electronic order book (e.g., in computer memory) that stores submitted order messages or quote messages that can be used to fulfill, match, execute, etc an incoming order or the like. This type of electronic exchange platform can also maintain (or determine) a NBBO (National Best Bid and Offer) value, which is a term used in SEC (Securities and Exchange Commission) requirements that brokers must guarantee customers the best available ask price when they buy securities and the best available bid price when they sell securities. Thus, the NBBO includes the highest bid price for the financial instrument in any order book (e.g., the most someone is willing to buy the financial instrument), and the lowest offer price (e.g., the lowest someone is willing to sell the financial instrument) in any order book. Further, electronic exchange platforms may maintain (or determine) a BBO, which is the best bid and offer in the order book for a given electronic exchange platform. A properly maintained and deep order book (e.g., that has many entries, order messages that are still unexecuted and thus not yet matched or fulfilled, or entities willing to trade in a given financial instrument) helps to provide liquidity (e.g., the ease in which the financial instrument can be converted into cash) for the financial instrument.
There are different ways that client systems (e.g., by which an investor) can interact with an order book. One way is to submit what is known as a market order via an order message. This type of order message includes is an instruction to buy or sell the indicated financial instrument at the current NBBO (whatever that may be). While such an order is generally quick to execute (e.g., because there is likely to be an available counter party listed on the order book), the order will end up taking liquidity from the market because one or more orders on the order book (or a part of an order) will end up being fulfilled and removed from the order book.
Conversely, entities can also submit a non-marketable order. One way to submit a non-marketable order is by using a so called limit order (e.g., an order which includes instruction to buy at a specified price) that is outside the NBBO. This non-marketable order will then add liquidity to the market by adding to the order book instead of taking liquidity from it.
To help facilitate liquidity (e.g., encourage market participates to provide liquidity) in the market, electronic exchange platforms can charge a fee for those entities that take liquidity from the market and offer a rebate to those entities that provide liquidity to the market. For example, an electronic exchange platform may rebate 20 mil (millicents) per share for liquidity providers and charge 30 mil for liquidity takers.
Entities that interact with a trading destination (or multiple trading destinations) may adjust how order messages are handled and to which trading destination the order messages are submitted based on the above rebate and fee structure so as to obtain superior economics.
For example, an entity (e.g., a retail broker) may segregate orders between those that it perceives to be non-marketable orders (comprised of orders outside of the NBBO) and those it perceives to be marketable orders (at or within the NBBO). Based on this determination, orders that fall into one type or the other may be routed to different trading destinations. For example, non-marketable orders may be posted on so-called “maker-taker” exchange books (e.g., electronic exchange platforms that provide rebates for liquidity and fees for removing liquidity) that result in a rebate for the client while marketable order flow (orders that are at or within the NBBO) can be sent to destinations that may be willing to offer rebates for this type of liquidity.
One issue is that market volatility (e.g., a measure of the price variation of a financial instrument over time) may result in situations where orders that were initially perceived to be non-marketable become marketable prior to posting at an intended trading destination (e.g., an electronic exchange platform). This occurs because of the length of time it takes to route an order (e.g., a couple seconds) versus the amount of time it takes a financial instrument to move in price (e.g., less than a second). In other words, even though the trading entity may have a real-time data feed from various markets (including the trading destination to which the order is submitted), there are circumstances in which the price that is perceived by the entity upon submission of an order may be different from the price at receipt of the order.
In other words, an order submitted to a trading destination may be accepted and handled on a central order book of an electronic exchange platform and result in taking liquidity from the order book and incurring a fee, rather than generating the initially desired rebate. Hence there is a need to provide new, improved, or different order routing systems and methods to better match the needs of certain order submitting clients.